Risk professionals are increasingly using root cause analysis as a tool for planning ahead, in addition to its traditional use subsequent to an adverse risk event.
Doing so enables risk professionals to manage the risks associated with new business objectives before they come to fruition and to exploit opportunities that they may otherwise have over looked, according to the Risk and Insurance Management Society’s (RIMS’) new report Root cause analysis: more than just cleaning up the mess.
The report, which was co-authored by Carol Fox of RIMS and Andrew Bent of Suncor, analyses eight different root cause analysis techniques that assist in identifying the underlying reason for a loss and the factors that could contribute to future success.
In the report, the authors argue that root cause analysis allows businesses both to take corrective action to prevent the recurrence of an adverse event or to take preparatory action that mitigates or removes a future risk, Canadian Underwriter reports. The report contains advice both on post-event analysis, which reveals the errors that led to an incident (or nearly did), and on predictive analytics, which reveal systemic weaknesses that may lead to an adverse event.
A root cause discipline is a key attribute or competency for a mature enterprise risk management programme, according to Fox. “With more precise information on the likely causes and impact of risks, organisations can make more informed choices about how they manage the 20% of root causes that drive 80% of the outcomes in a predictive way, along with the more typically used post-event analyses,” she said.
The use of root cause analysis techniques can both revolutionise the way risks are managed before they occur and systematically lower the cost of them when they do, Bent said. “By strategically integrating root causes analyses into an organisation’s business model through both the planning and operational phases, risk can truly be managed across the whole business life cycle.”